The Tao of Charlie Munger with a commentary by David Clark is a collection of quotes by Berkshire Hathaway's Vice Chairman.
Charlie Muger studied mathematics at the Univesity of Michigan, trained as a meteorologist whilst in the army, and graduated from Harvard Law School.
Munger is one of America's most successful investors. He is Vice Chairman of Berkshire Hathaway.
His wit and wisdom is equal to that of Warren Buffett, his business partner for the past 40 years.
Below is a review of three of the book's chapters. All the chapters of the book are extremely wiity, informative and full of information rarely found anywhere else.
Charlie Munger says:
"I've never been able to predict accurately.
I don't make money predicting accurately.
We just tend to get into good businesses and stay there"
One quote in "The Tao of Charlie Munger" read:
"Bejamin Graham had a lot to learn as an investor.
His idea of how to value companies were all shaped by how
the Great Crash and the Depression almost destroyed him ...
It left him with an aftermath of fear for the rest of his life,
and all his methods were designed to keep that at bay"
Charlie Munger does not say it in his book, but implies it, that the confidence of Benjamin Graham was broken after the Great Crash of 1929 and the Depression that followed it.
From the beginning of the Great Crash (September 3rd. 1929) through to July 8th. 1932 the Dow Jones Index crashed 89% - enough to break any man's confidence.
Munger goes on to say that Graham tried to protect himself by developing a concept he called 'Margin of Safety'.
He scoured the markets for companies that sold in the market for less than their Book Value. For example, if Graham fond a company that was valued at $10 a share but it was trading at a lowly $6 a share then Graham consider this company to have a Margin of Safety of $4.
But Munger then argued that Graham's system was flawed because of this Margin of Safety. Valuing a share at $10 (called the Intrinsic Value) and it being valued by the market at $6 was good research - it's what Munger and Buffett do themselves.
Munger's argument was that once the share reached it's Intrinsic Value, Graham would take profits. Holding for the long term did not appear to be in Graham's vocabulary.
He gave the fantastic example of Berkshire Hathaway. He stated that if Graham had been around to buy Berkshire Hathaway in 1974 when it was selling at a 50% discount to its Book Value, he would have sold the stock in 1980 when it reached its Intrinsic Value.
Graham would have missed out on selling in 2016 at $210,000 a share. Sure, he would have nailed a profit but he would have left far too much on the table by selling to soon - all because he would have been fearful of making a loss.
But Benjamin Graham missed the whole point. Einstein's 8th. Wonder of the World - Compound Interest. Great businesses can generate unbelievable returns over a 10 year, 20 year, or 30+ year term.
The moral of the story is clear - identify a great business, then buy and hold - forever.
Here's another quote for 'The Tao of Charlie Munger:'
"Sit on your ass investing. You're paying less to brokers,
you're listening to less nonsense, and if it works,
the tax system gives you an extra one, two,
or three percentage points per annum"
Charlies message here is quite clear.
An investor is far, far better off buying business with exceptional business economics working in its favour. And then holding this business for many years. Not engaging in a lot of buying and selling tryiing to anticipate market trends.
The beauty of compound interest is that it puts time in the markets to work. £1 Million invested with a 4% compound growth rate would, after 20 years, grow into a sum of £2,191,123
But that same £1 Million invested with a 7% compound growth would be worth £3,869,684 after 20 years. Totally astonishing!
And one more quote from 'The Tao of Charlie Munger:'
"If you, like me, lived through 1973-74 or even the early 1990s ...
there was a waiting list list to get OUT of the country club -
that's when you know things are tough.
If you live long enough, you'll see it."
There have been numerous recessions throughout the 20th. Century, wheretheDow has declined significantly.
Take for example the financial crisis of 2007-09. The economy collapsed, the Dow lost 54% of its value.
Charlie Munger knew that it would happen. How? Because he understands Stock Market Cycles.
Charlie or Warren Buffett's strategy is knowing that these cycles occur and they use these periods to build up cash in anticipation. When markets take a tumble, they then fill their boots with cheap stock.
In the early 1990s, Banks were hit badly but Charlie and Warren bought 5 Million shares in Wells Fargo at a cost of $286 Million.
Today, those shares, thanks to stock splits, have grown into40 Million shares and are now worth $1.9 Billion.
Berkshire Hathaway achieved, excluding dividends, an average compound growth rate of 7.5% over 26 years.
But the icing on the cake is the $59.2 Million a year in dividends.
And there you have it. Just a short review of three of the vivid chapters contained in 'The Tao of Charlie Munger'.
There are plenty more Chapters contained within the four parts that make up the book.
The Tao of Charlie Munger by David Clark
A great little book. Full of the wisdom of Charlie Munger and its interpretation by David Clark.
We have reviewed three of the chapters above, but reading the whole book is enlightening.
Our only regret after reading this book was - if only?
Order your copy of this Charlie Munger, full of wisdom, classic. Just click on the link below:
We loved this book.
In a very witty way, Charlie Munger makes what would normally be financial jargon, into a very intersting and informative read.
We all want to get good at investing. This book is surely another stepping stone in our desires to achieve sucess, not just in investing but also in life.
In fact, any book about Cahrlie Munger and Warren Buffett, should be near the top of your reading list.
Who would argue with Munger or Buffett? They have proved their theory time after time. But people, including ourselves, still do not follow their principles to the letter.
For people younger than ourselves - need we say any more?
Charlie Munger has said many times, it wasn't brains that made him rich, it was his temperament.